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Tita Lopez, managing director of the ABS Professional Lai Billed to C 3,000 4,000 Total Overhead Costs P340,000

Tita Lopez, managing director of the ABS Professional Lai Billed to C 3,000 4,000 Total Overhead Costs P340,000

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Problem 3 (Linear Cost Approximation) is Professional Labor-Hours Billed to Clients 3,000 4,000 5,000 Total Overhead Costs P340,000 400,000 435,000 477,000 529,000 587,000 binenin 7,000 8,000 ubain Required: 1. Compute the linear cost function, relating total overhead cost to professional labor-hours, using the representative observations of 4,000 and 7,000 hours. Plot the linear cost function. component of the cost function represent the fixed overhead costs of the ABS Consulting Group? Why? 2. What would be the predicted total overhead costs for (a) 5,000 hours, and (b) 8,000 hours using the cost function estimated in requirement 1? Plot the predicted costs and actual costs for 5,000 and 8,000 hours. Does the constant
Transcribed Image Text:Problem 3 (Linear Cost Approximation) is Professional Labor-Hours Billed to Clients 3,000 4,000 5,000 Total Overhead Costs P340,000 400,000 435,000 477,000 529,000 587,000 binenin 7,000 8,000 ubain Required: 1. Compute the linear cost function, relating total overhead cost to professional labor-hours, using the representative observations of 4,000 and 7,000 hours. Plot the linear cost function. component of the cost function represent the fixed overhead costs of the ABS Consulting Group? Why? 2. What would be the predicted total overhead costs for (a) 5,000 hours, and (b) 8,000 hours using the cost function estimated in requirement 1? Plot the predicted costs and actual costs for 5,000 and 8,000 hours. Does the constant
3. Lopez had a chance to accept a special job that would have boosted professional labor-hours from 4,000 to 5,000 hours. Suppose Lopez, guided by the linear cost function, rejected this job because it would have brought a total increase in contribution margin of P38,000, before deducting the predicted increase in total overhead cost, P43,000. What is the total contribution margin actually forgone?
Transcribed Image Text:3. Lopez had a chance to accept a special job that would have boosted professional labor-hours from 4,000 to 5,000 hours. Suppose Lopez, guided by the linear cost function, rejected this job because it would have brought a total increase in contribution margin of P38,000, before deducting the predicted increase in total overhead cost, P43,000. What is the total contribution margin actually forgone?
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